HW3 Chapter 5, 6, 7
SOLUTIONS
Chapter 5
Question 4
Amazon.com switched from a pure pull to a push-pull supply chain strategy after its sales reached
a significant volume. It established regional warehouses in order to aggregate demand across
large geographical areas, and increase service levels. These regional ware-houses form the
boundary between the push and pull portions of the supply chain.
Similar to Amazon.com, Peapod moved from a pure pull to a push-pull strategy by establishing
warehouses in order to aggregate demand over geographical areas, and increase service levels.
Computer components are standardized, and the demand for these components is determined by
the finished goods that consume them. Thus, Dell achieves significant economies of scale and
risk pooling by using a push-strategy in its supply chain up until the assembly operation.
Furniture is a highly customized product, but its handling and distribution are complex due to its
bulkiness. Therefore, the production phase is a pull system based on realized demand while
transportation of furniture is implemented based on fixed delivery schedules in order to achieve
economies of scale and risk pooling.
Question 10
A cross-docking strategy is appropriate for suppliers of fast moving nonperishable products, such
as beer, rice, and shampoo, with high overall sales volumes, but relatively low demands at
individual stores. In this case, cross-docking helps to coordinate shipments of fully loaded trucks.
On the other hand, perishable products for which lead times are critical, e.g., dairy products like
milk and yogurt, are best suited to a direct shipment strategy. Also, if individual stores require
full truckloads of certain products, then using a warehouse does not reduce transportation costs,
so the supplier can ship directly to the stores.
For slow moving products, such as household appliances, the discount store can benefit from
warehousing in order to reduce the total safety stock in the system, and to decrease transportation
costs.
Chapter 6
Question 1
a. Consider a company for whom logistics is a core competency, and that has sufficient resources
to implement the strategy.
b. Consider a company whose products are perishable, and for which environmental conditions
must be tightly controlled during warehousing and transportation. (For instance, a biotechnology
or a pharmaceutical company) In this case, the company may not want to give up control of
products during logistics operations in order to ensure their quality, and it may choose to acquire
a logistics company with appropriate expertise.
c. Consider a company that has internal logistics expertise, and that is trying to expand its
operations into new markets. If the company is already resource-constrained, it may make sense
to develop the strategy in-house, but delegate specific operations to third-party logistics providers.
d. Consider a new company that established its manufacturing operations recently, and is
struggling to ramp-up its output. In this case, it may make sense for this company to focus on
design, manufacturing and sales operations of its products and outsource all activities related to
transportation and warehousing of raw materials, and distribution of finished goods.
Question 6
Some of the following steps could have been taken to prevent the failure of the program:
1. In a VMI system, trust issues should be resolved at the very beginning during contract
negotiations. Additionally, communication channels must be open at all times to discuss any
additional concerns that may arise. Clearly, these issues were not addressed in sufficient detail at
Spartan.
2. Spartan could have specified a test period for its suppliers, and after the test period the program
could have been discontinued with unsuccessful suppliers.
3. Spartan could have collaborated with its suppliers to determine agreed-upon forecasts and help
them resolve forecasting issues due to promotions.
4. The retailer-supplier partnership could have started with a continuous replenishment system
which is less risky than a vendor-managed inventory system. Then, the VMI system could have
been established based on this experience.
Chapter 7
Question 3
In this case, the risk is high, but also the potential return is high. If the base commitment level is
low, the option level is high, and the demand turns out to be higher than what the retailer expects,
then the return of the supplier may be substantially more than what it would have been under a
long-term contract. This is due to the differential between the overall unit price (prepayment plus
the exercise price) in an option contract and the unit price in a long-term contract. In addition, the
supplier can pool the risk among several customers.
Question 4
The private and consortia-based e-marketplaces play different roles in IBM’s supply chain. IBM
benefits from both marketplaces in different ways.
1. In the private exchange, the focus is on better supply chain collaboration. Sensitive information
such as product design, customer orders, cost, production plans, etc., is shared between IBM and
its suppliers to improve operations, decrease costs and increase revenues.
2. The objective in the consortia-based e-marketplace is to increase purchasing power by
aggregating buyers, to find new and high quality suppliers, and to allow these suppliers achieve
cost efficiencies by dealing with standardized systems.